Repeal is sought on out-of-state tax

It's an undue burden, state lawmaker says

State lawmakers are moving to repeal what has been a little-known and little-enforced tax on out-of-state purchases.

And they are trying to do it in a way to keep anyone from actually paying it.

House Bill 2629 says individuals no longer have to figure out and pay the state the sales tax on items they order online, by phone or even bring back from somewhere else where they have not paid the levy. The only exceptions would be motor vehicles or watercraft.

The legislation has gained unanimous approval by the House Ways and Means Committee. Because scrapping the levy is unlikely to produce a major drop in state revenue, that increases the chances of legislative approval.

But there are foes, including Rep. Matt Heinz, D-Tucson, who crafted last year's legislation to beef up reporting requirements.

Arizona law requires merchants to collect a "transaction- privilege tax" on most tangible items sold in the state. It essentially is a sales tax, the legal difference being that it is levied on the merchant and not the customer, although both are collected at the time of sale.

The flip side is the "use tax," enacted in 1955, which those who buy items elsewhere are supposed to compute at the applicable state rate and remand to the Department of Revenue.

Businesses, which make major purchases, for years have paid a use tax. But although the law also applies to individuals, most consumers have been unaware of the tax and never paid it.

Last year, in a bid to capture some revenue, the Legislature approved putting a line on individual income-tax forms and requiring anyone with out-of-state purchases to calculate the amount and pay it.

House Majority Whip Debbie Lesko is leading the charge for repeal.

"I believe this use-tax line on the income-tax statement causes undue burden on the taxpayer," the Glendale Republican said. "Most don't know they're supposed to be reporting it, as evidenced by the public outcry" after constituents learned of the new mandate.

Heinz said the repeal effort ignores the purpose behind the tax and last year's enhanced enforcement provision.

"The policy that was enacted is to really make this type of taxation fair for the brick-and-mortar business," he said.

Heinz said he will oppose any repeal until there is a way to "put people on equal footing, whether or not they're a dot-com or they're selling something on the corner at a shop."

Nor was he dissuaded by Lesko's arguments that most individuals do not keep track of every online purchase to be able to compute the taxes that would have been paid had the items been bought in state.

"The form asks you to do the best you can," Heinz said.

"I don't want to hurt retailers here," Lesko said.

But she said their issue is the ever-increasing level of online sales from retailers that have no legal presence in Arizona and therefore are not obligated to collect the state sales tax.

"Until the U.S. Congress decides they want places like Amazon to charge sales tax, to me, that's a totally different subject," Lesko said. The problem is the burden on individuals to figure out and remit taxes.

Rep. Jack Harper, R-Surprise, expressed his own concerns about creating two classes of taxpayers.

"The individual that's tech- savvy and purchases things on the Internet gets out of paying sales tax," he said.

"Yet the senior citizen that's afraid to put their credit-card number on the Internet, or even to purchase something securely, they're going to be paying sales tax. How's that fair to the senior citizen?"

Lesko said Harper is underestimating seniors.

"There's a lot of senior citizens in my district that are very tech-savvy," she said.